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These two charts are my inflation-adjusted versions of the Case Shiller home price data. The top chart shows the composite index of 20 large metro areas, while the bottom chart goes back much further in time but shows only the top 10 areas.

I note that prices have been relatively stable for the past year. This is a good sign that the price adjustment process has done its job, and that a 35% decline in real prices was enough to allow the market to clear. Mortgage rates have also declined in recent years, further adding to the affordability of homes and further enhancing the clearing process. This is exactly what you would expect from a market that suddenly found itself with a huge excess inventory of high-priced homes; prices have to fall by enough to entice new buyers into the market.

Many observers continue to believe that this plateau in home prices is only temporary, and that it will be followed by yet another plunge, triggered by an avalanche of foreclosures that are set to hit the market over the next year or so. The second chart might support that notion, since it shows real prices today are still about 40% above their 1987 levels. But I have two reasons why that may not be a valid point: 1) prices in 1987 were relatively depressed, coming at the tail end of the housing price slump that began in the early 1980s; and 2) real housing prices tend to rise over time by a little over 1% a year, and the rise in real prices shown in the second chart works out to 1.5% per year annualized. I can't say definitively that prices won't fall further, only that it is not unreasonable to think they won't; prices today may be pretty close to their long-term equilibrium (or mean-reverting?) levels.